In a setback to state efforts to force employers to provide more generous health benefits, a federal judge yesterday struck down a Maryland law that was aimed at the nation’s largest retailer, Wal-Mart Stores.
The judge ruled that the federal law governing employer-provided health benefits takes precedence over the state law, which would have required companies with 10,000 or more workers to spend at least 8 percent of their payrolls on health insurance, or pay the difference into a state Medicaid fund.
Only Wal-Mart, which has been thrust into the center of the national debate over who should pay for health care, would have been affected by the law.
The decision yesterday is likely to derail efforts to pass similar laws in states where organized labor leaders and lawmakers have criticized companies for shirking their responsibility to provide adequate health insurance for their employees.
“The bad news is that this will discourage a lot of states who are moving forward with these bills from doing so,” said Naomi Walker, the director of state legislative programs at the A.F.L.-C.I.O., which lobbied for the Maryland law.
Sandy Kennedy, the president of the Retail Industry Leaders Association, a trade group in Arlington, Va., that had challenged the law, said the ruling “was a victory for all business,” adding that she hoped other states would “heed the decision.”
States are increasingly grappling with rising health care costs and the growing numbers of uninsured and have been looking for ways to require employers to shoulder more of the costs. While yesterday’s decision may weaken the ability of states to force employers to provide coverage, policy experts say states are likely to try different legislative approaches, like the one in Massachusetts, where the burden falls on both individuals and companies.
In yesterday’s decision, Judge J. Frederick Motz of Federal District Court, ruled that the Maryland law, which was overwhelming passed by the Democrat-controlled state legislature in January, was pre-empted by the federal Employee Retirement Income Security Act, or Erisa.
The act sets out a national standard for company benefit plans, replacing what would otherwise be a patchwork of state regulations.
The law “violates Erisa’s fundamental purpose of permitting multistate employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration,” he wrote in the decision.
In an interview on a New York radio program, Wal-Mart’s chief executive, H. Lee Scott Jr., called the court’s ruling “encouraging.” He said it signaled that the federal government, rather than individual states, would be “the control point for these kinds of issues so that commercial interests, businesses will be able to have one standard to work against.”
While Maryland’s state attorney general said he expected to appeal the decision, the ruling was viewed by both opponents and supporters as a defeat for states trying to govern corporate behavior.
Similar laws are vulnerable to the same challenge, said J. D. Piro, an attorney and principal at Hewitt Associates, a consulting firm. Yesterday’s decision “is an impediment to this kind of legislation,” he said.
In his decision, Judge Motz emphasized that his ruling only applied to the Maryland law, and it was unclear exactly how the decision might affect the laws that have already passed in Massachusetts and Vermont.
The Massachusetts law “addresses health care issues comprehensively and in a manner that arguably has only incidental effects upon Erisa plans,” the judge wrote. He noted that “it is strongly in the public interest to permit states to perform their traditional role of serving as laboratories for experiment in controlling the costs and increasing the quality of health care for all citizens.”
Unlike the Maryland bill, which was passed over the veto of the Republican governor, Robert L. Ehrlich Jr., the Massachusetts law was also viewed as a ground-breaking political compromise, requiring individuals to buy coverage if they have the means and companies to pay a fee if they did not offer insurance.
But any state law, including the one in Massachusetts, could be challenged on similar grounds since the ruling finds that the federal law pre-empts any state efforts. While the courts may well draw distinctions between different laws, the question, Mr. Piro said, is “how much room to do you have to experiment?”
Some policy experts say states are already looking more to the Massachusetts model than the one in Maryland in thinking about how to expand health insurance for their residents. “What happened in Massachusetts is going to be far more instructive to other states than what happened in Maryland,” said Ronald Pollack, executive director of Families USA, a health advocacy group that supported the Maryland bill.
In Maryland, Governor Ehrlich issued a statement after the ruling praising it but legislators said they would try to draft a new law if the state loses its appeal. “We will not abandon this,” said Thomas V. Mike Miller Jr., the Democratic president of the Maryland Senate.
“To continue to allow this huge corporation to take profits out of the state without providing adequate health care coverage would be wrong,” he said.
And proponents said the law had already influenced Wal-Mart’s health insurance policies. Since it was passed, the retailer has announced that it will permit part-time employees to enroll their children in the health plan and that it will reduce by a year the waiting period before a new part-time employee is eligible for benefits.
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